For the tax year 2022/23, Sole Traders will have to base their tax on the income they actually earn in that tax year rather than using a basis period.
For 93% of all sole traders, who prepare their books to 31st March / 5th April, there will be no change but for the rest there is likely to be a significant jump in the taxes charged for 2022/23.
This is because if you have been calculating your income to a year end prior to the 5th March, for example 30th September, in 2022/23 you will need to report your income and tax not only up to the 30th September, but straight through to 5th April.
This accelerates your tax charge for that year.
Why do this?
The reason this is being brought about is that MTD Income Tax requires quarterly reporting of income tax in a digital format, so income tax will need to be reported for quarters ending March, June, Sept and Dec. Aligning these will make it easier for HMRC to process and standardise the flow of funds.
How we can help
If you prepare your accounts to a different period, then we will be in contact with you to let you know the implications for you and your business.
MTD – the end of Manual Records from April 2023
If you are a Sole Trader with income over £10,000 and keep manual records, then from April 2023 you will no longer be able to do this. You will be required to:
- Maintain records on a software spreadsheet or software product – paper records will no longer meet the requirements of the tax legislation.
- Submit information to HMRC each quarter based on these electronic records.
- Submit four quarterly updates, an end-of-period statement, and a final declaration to HMRC – this will replace the Self-Assessment tax return, which will no longer be required.
The requirement to keep digital records will not mean that businesses will have to scan and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, but each individual transaction (not summaries) will need to be recorded and stored digitally.
We are here to help
If you still prepare manual records, and you are not interested in going online and using a software product, then you have two choices:
- Prepare your own spreadsheet of your records
- Pay us to complete your spreadsheet
Prepare your own spreadsheet of your records
We can provide you with a spreadsheet and the training needed for you to complete this. Send it to us once a quarter and we will check and submit it for you.
This is the most cost-effective method as you can do the work as you go along.
Pay us to complete your spreadsheet
We can prepare your spreadsheet for you each quarter from your records and submit it for you.
If you are already on a spreadsheet we can help, make sure it is MTD Income Tax compliant, simply submit this to us once a quarter for checking and submission.
An opportunity to get more out of your accounts
If you are using a spreadsheet or keeping manual records, then now might be a good time to set up a software package such as Xero.com. We can help you get a better grasp of your finances by using the latest bookkeeping software.